Economists raise India’s GDP outlook

The prospect of prime minister designate Narendra Modi leading India’s most stable government in three decades has prompted economists to raise their growth forecasts.

Morgan Stanley, Citigroup and Nomura Holdings expect faster expansion in the next few years on Modi’s plans to attract investment and to build more ports, roads and bridges.

India’s gross domestic product (GDP) would grow at a four-year high of 6.5 percent in the year to March 2016, Morgan Stanley predicted. Its previous estimate was 6.2 percent.

“The election results could be an inflection point for India’s story,” Chetan Ahya, Morgan Stanley’s chief Asia economist, said. “The decisive election outcome suggests the new government will be able to implement reforms at a faster pace than previously expected.”

Modi should use his mandate to cut subsidies and to increase spending on infrastructure to spur private investment from a nine-year low, Ahya said.

Citigroup and Nomura said GDP would grow 6.5 percent in fiscal 2016 – up from previous forecasts of 6.2 percent and 5.7 percent, respectively.

India would achieve growth of 6.1 percent in fiscal 2016, according to a Bloomberg survey published on April 30, compared with predictions for fellow Brics nations China at 7.25 percent, Brazil at 3.2 percent and Russia’s 2.5 percent.

“With political clarity emerging, business and household confidence is likely to rise,” said Sonal Varma, a Nomura economist in Mumbai.

India’s economy probably grew 4.9 percent in the year to March 31. The previous year’s 4.5 percent rate was the slowest since 2003. The government and Reserve Bank of India do not have official growth forecasts for 2016.

Ahya said Modi was likely to simplify policies for infrastructure and industry, help companies improve their balance sheets and boost banks’ capital. The policy overhaul would improve business sentiment and corporate profits, incentivizing them to spend more, he added.

In the elections, the bloc led by the Bharatiya Janata Party (BJP) won far more parliamentary seats that were required for a majority. While this guarantees smoother progress for bills in the lower house, India’s federal system requires bills be negotiated through the upper house and with state governments. The BJP has only 61 of the 245 members in the upper house and forms governments in just six of 28 Indian states.

HSBC Holdings predicted that another roadblock might be presented by the bureaucracy, which was rated the worst among 12 Asian economies tracked by Political & Economic Risk Consultancy last year. – Bloomberg